Urban Outfitters is the latest retail store to try a paid membership program across URBN’s portfolio of brands which includes Urban Outfitters, Anthropologie, Free People, BHLDN, Terrain, Menus & Venues and Nuuly. Urban Outfitters started testing the paid membership program, called UP, last month. The initial tests launched in the Dallas and Atlanta markets and will run for six to 12 months, depending on how well the markets respond to the premium loyalty program and how long it takes the company to learn from the preliminary testing.
“UP is designed to drive increased frequency, capture a greater share of wallet, improve retention, provide opportunities for greater cross-brand exposure and selling and attract new customers. We believe the ability to access benefits at all Urban brands, for the price of one membership fee, offers a key differentiator for our program,” said Dick Hayne, CEO of URBN, parent company of Urban Outfitters on a March 2, 2021 earnings call. “We look forward to sharing more about the UP initiatives on future calls.”
“We’re really excited about UP,” said Hayne. “…the goal here is really to test and learn and to understand the degree to which customers are intrigued by these offerings and then also be able to measure over time how customers respond and if their behavior changes based on becoming a member. So early days. We just launched it a few weeks ago, very early, but (we’re) encouraged by the early feedback so far and excited about the program.”
Paid membership program pricing and perks
UP will have two tiers: one at $48 per year and another at $98 per year. The $48 tier includes free shipping and returns and a 15% discount on all purchases. The $98 tier includes those perks, a monthly $10 coupon and a discount on a monthly Nuuly subscription.
Launched in 2019, Nuuly is a monthly women’s clothing rental subscription service. For $88 a month, subscribers can select six items from hundreds of brands to wear, including Urban Outfitters, Freepeople and Anthropologie. The service includes free two-day shipping and returns.
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URBN subscription revenue
Sales for the company’s fourth quarter, which ended January 31, 2021, were $1.09 billion, down 7% year-over-year. The majority of the company’s revenue comes from retail sales at $1.01 billion, followed by wholesale revenue of $67.9 million and subscription revenue of $6.7 million. While total revenue was down, subscription revenue for the fourth quarter was $6.7 million, an 11% increase year-over-year. Gross profit for the subscription segment, however, was flat year-over-year.
In terms of retail sales, URBN said the decline in retail sales was due to the reduced foot traffic caused by the COVID-19 pandemic and occupancy restrictions for shoppers. While sales were lower in stores, however, revenue declines were partially offset by growth in digital sales and improved conversion rates. Though subscriptions account for less than 1% of total sales, subscription inventory for Nuuly makes up 3.05% of total inventory, giving the segment room for growth.
UP has an interesting product mix – retail, wholesale, clothing rental subscriptions and now a paid membership program – across multiple brands. This mix gives URBN the best opportunity for success, which the company learned during the pandemic. When retail sales were down in stores, their digital channels did well, and their subscription product Nuuly grew.
The paid membership program is a great idea to test right now. It provides a new recurring revenue source at a reasonable price point, and there is little risk, assuming URBN is covering its costs (e.g., free shipping, coupons, discounts) with the annual fees. Only the most loyal shoppers will spend money to access those discounts which further cements their relationship with URBN brands. If the tests fail in Dallas and Atlanta, URBN hasn’t lost anything. If it succeeds, it can grow the program in different markets and build additional financial sustainability for itself, regardless of how the retail and wholesale markets change post-pandemic.